Contribution Margin I in E-Commerce
CM1 is the foundation of all profitability calculations - no solid assortment decision without it.
Contribution Margin I (CM1) is the first and most fundamental level of contribution margin analysis. It shows what remains from the selling price after deducting pure COGS - before shipping, packaging, payment fees, or other variable costs are considered.
What's included in COGS for E-Commerce?
In online retail, Cost of Goods Sold (COGS) typically includes:
- 1 Purchase price: The net price you pay to your supplier or manufacturer.
- 2 Import costs: Duties, freight charges, and insurance for international sourcing.
- 3 Inbound logistics: Costs for receiving goods and quality inspection.
CM1 vs. Gross Margin
CM1 is closely related to Gross Margin. The difference: Gross Margin is expressed as a percentage (CM1 / Revenue x 100), while CM1 is an absolute amount. Both metrics use the same base value.
Example: You sell sneakers for $140. The purchase price from the manufacturer is $56. Your CM1: $140 - $56 = $84 (equals 60% Gross Margin).
Why CM1 alone isn't enough
A high CM1 can be deceiving. Sneakers with $84 CM1 look profitable. But: Shipping costs $6, packaging $2.50, payment fees $4.20, and return processing averages $10. Suddenly only $61.30 remains - the Contribution Margin II.
That's why CM1 is only the first step. For real assortment decisions, you need CM2 and CM3.
Practical application: Setting a minimum CM1
Set a minimum CM1 for your store below which no products will be listed. Typical benchmarks in e-commerce are 40-50%. Products with lower CM1 can only work if they serve as traffic drivers or have extremely low subsequent costs.